Facebook, Inc. (FB) and Pinterest, Inc. (PINS) are two of the world’s dominant social media platforms. Over the years, these two companies have revolutionized how people connect with each other. With people spending more time at home now, these platforms have received a significant boost.

With advertisers spending more on these platforms to grab attention of the users, both FB and PINS are expected to keep growing going into 2021.

While FB returned 38% over the past year, PINS gained 276%. In terms of year-to-date performance, PINS is a clear winner with 267.3% returns versus FB’s 35.4%. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

While FB was recently accused of anti-competitive behavior by the Federal Trade Commission (FTC) and state attorneys’ general for its acquisition of Instagram and WhatsApp, the company has responded  that it was the FTC that cleared FB’s acquisition of Instagram. Although the final verdict on the situation has yet to be rendered, FB remains confident that evidence will show that its acquisition of Instagram and WhatsApp is not anti-competitive.

On December 8^th, the company introduced carts to WhatsApp. With carts, people can browse a catalog, select multiple products, and send the order as one message to the business. Recently, FB enabled a feature in WhatsApp so that people across India can send money through WhatsApp. The company also introduced time-delayed disappearing messages on WhatsApp.

FB launched several cloud-streamed games in its app and on browser in October. The company added a Reels tab and a Shop tab on Instagram last month. FB reached an agreement to acquire Kustomer, which is a top-rated CRM that enables businesses to efficiently manage all customer interactions across channels. The company is also set to launch Facebook News in the United Kingdom in January 2021.

PINS recently introduced its latest collection of merchant tools to help retailers reach more customers this holiday season and beyond. The tools include a new storefront profile, faster catalogs feed ingestion, collections as a shopping ad format, video for collections, automatic bidding, conversion insights and analysis, and an improved product tagging test.

The company launched the Pinterest widget for iOS 14 in October. It met users’ demand and made it possible for them to feature a board of their own or one they follow and see daily inspiration right from their iPhone home screen. The company also integrated with Microsoft Edge so that users can find relevant pins more easily and even export them back to their profile. PINS has taken actions like increasing the quality and coverage of its skin tone’ ranges feature to ensure the global community feels represented on the platform.

PINS launched a suite of creator-first features including Story Pins in September. These new publishing and measurement tools are expected to afford creators ways to easily publish immersive and expansive stories directly and reach users looking for inspirational ideas and people to follow. The company has appointed Salaam Coleman Smith, a former Executive Vice President of Programming and Strategy at Disney’s ABC Family and Freeform, to its Board of Directors.

Recent Financial Results

FB’s revenue surged 21.6% year-over-year to $21.5 billion for the third quarter ended September 2020 as people and businesses continued to rely on its services to stay connected.

Advertising revenue alone has increased more than 22% year-over-year to $21.2 billion. Average Revenue per User (ARPU) has increased 8.7% year-over-year to $7.89. Monthly Active Users (MAUs) increased 12% year-over-year to 2.74 billion. And EPS has increased 27.8% year-over-year to $2.71.

PINS’ revenue has climbed 58.2% year-over-year to $442.6 million in the third quarter ended September 2020. While US revenue increased 49% year-over-year to $374 million, international revenue increased 145% year-over-year to $69 million. The Average Revenue per User (ARPU) has increased 15% year-over-year to $1.03. PINS’ Global Monthly Active Users (MAUs) increased 37% year-over-year to 442 million, and its EPS increased 1200% year-over-year to $0.13.

Past and Expected Financial Performance

FB’s revenue has increased 18.7% in the past year. The market expects the company’s revenue to increase 24.7% for the current quarter ending December 2020, 18.7% this year, and 23.9% next year. FB’s EPS is expected to grow 24.6% in the current quarter, 21.1% for the quarter ending March 2021, and 12.1% next year.

PINS’ revenue increased 36.5% in the past year. The market expects its revenue to increase 60.7% for the current quarter ending December 2020, 42.6% this year and 41.5% next year. The company’s EPS is expected to grow 166.7% in the current quarter, 80% for the quarter ending March 2021, and 117.2% next year.

Thus, PINS has an edge over FB here.

Profitability

FB’s trailing-12-month revenue of 78.97B is much more than PINS’ 1.39B. Moreover, FB is more profitable with a gross margin of 81%, versus PINS’ 70%.

Also, FB’s ROE and ROA of 23.9% and 11%, respectively, compare favorably with PINS’ negative values.

Valuation

In terms of forward P/E, PINS is currently trading at 252.32x, which is much more expensive than FB, which is currently trading at 29.72x. Moreover, PINS is more expensive in terms of trailing-12-month P/S (30.73x versus FB’s 10.03x), and its trailing-12-month EV/S of 29.43x is also higher than FB’s 9.46x.

In terms of trailing-12-month price-to-book, PINS’ 21.77x is higher than FB’s 6.73x.

Though PINS looks much more expensive compared to FB, we believe it’s worth paying this premium considering PINS’ significantly higher earnings growth potential.

POWR Ratings

While FB is rated “Buy” in our proprietary POWR Ratings system, PINS is rated “Strong Buy”. Here are how the four components of overall POWR Rating are graded for both these stocks:

FB has an “A” for Trade Grade, and Industry Rank, and a “B” for Buy & Hold Grade and Peer Grade. It is currently ranked #17 out of 59 stocks in the Internet industry.

PINS holds an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank.

The Winner

Both FB and PINS are good investment bets considering their market dominance. However, PINS appears to be a better buy despite trading at a significantly higher valuation, based on its higher earnings and revenue growth potential.

Want More Great Investing Ideas?

9 “MUST OWN” Growth Stocks for 2021

Are Stocks Stuck @ 3,700

Top 12 Stocks for 2021

PINS shares were trading at $70.97 per share on Thursday afternoon, up $2.50 (+3.65%). Year-to-date, PINS has gained 280.74%, versus a 15.61% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

More Resources for the Stocks in this Article